Ch.

14: Export and Import Services

Sources of Information:

Export government: US government website established by the Department

of Commerce
o Provides information for new exporters among other issues
Export promotion services (for those already in the business) provided by the
International Trade Administration (ITA). Departments of the ITA include:
o Global Markets (used to be called Market Access and Compliance)
Expand market for US products and oversee compliances with
trade agreements
o Industry and Analysis (used to be called Manufacturing Services)
Specialists in specific industries and help in setting up export
market
Develop export marketing plans and programs
o Commercial Services
Market research, information on foreign companies, identify
investment opportunities, etc.
o Enforcement and Compliance (used to be called Import Administration)
Safeguard and enhance competitive strength of US industries
Enforce US antidumping duties and countervailing duties
Compliance with US trade agreements

For new exporters:

Must gather information and have an export marketing plan

Understand the terms of sale i.e. using the 11 Incoterms developed by the
International Chamber of Commerce (p.346)

The Export Process

1. Shipping Modes of Transportation:

o Air
Commodities that have high value per unit or very time sensitive
Examples: Documents, pharmaceuticals, fashion garments,
electronics, perishable agricultural and seafood products
Biggest advantage: Time
Biggest disadvantage: Cost
o Water (Inland and Ocean)
Container ship carry cargo packed into standard containers
General cargo ships carry loose-packaged cargo of various types
Bulk carriers carry unpackaged goods in large volumes such as
grain, coal, fertilizer, mineral ore, etc.
Tankers carry liquids such as oil and gas
o Land (Rail and Truck)
Refrigerated trucks for perishable items
Platform trucks for shipping cars
Trucks and trains for transporting livestock

Trains for long-distance transport of lumber, chemicals, etc.

Pipeline
Gasoline, anhydrous ammonia, butane, CO2, compressed
natural gas (CNG), crude oil, condensates, jet fuels, nitrogen,
etc.
Crude oil, refined petroleum products, and natural gas make up
the vast majority of US products transported through pipelines.
As of 2012, US has more than 2.6 million miles of pipeline for oil,
natural gas, hazardous liquids, propane, etc.
The controversy over the Keystone pipeline (remaining
portion ~ 1200 miles) NPR, Nov 2014.

Choosing a Shipping Mode:

Market location (port or land-locked)

Speed V. Cost which is more important?
Intermodel transportation: Transportation in container using multiple
modes of transportation V. Transmodel transportation: movement of
freight within same mode of transport.
Worlds largest container port (as of 2013) in twenty Foot Equivalent Unit
(TEU)
Source: World Shipping Council. Org
Port
1. Shanghai
2. Singapore
3. Shenzhen
4. Hong Kong
5. Busan (S. Korea)
19. Los Angeles
21. Long Beach
27. New York/New
Jersey

Size (in million TEUs)

33.62
32.60
23.28
22.35
17.69
7.87
6.73
5.47

Ports and Pollution

Ports and major economic engines but are also major sources of pollution
Nearly 10% of smog in SoCal comes from business generated by the ports of
Long Beach and LA (Traffic, oil refineries, LAX all add to the pollution)/
Ports of Long Beach and LA have undertaken major green initiatives:
o Since 2005, trucks and harbor vehicles have been replaced or
retrofitted
o Vessel emissions have been reduced via ship-to-shore electricity,
reduced speeds, and smokestack controls.
o Launched the ESI (Environmental Ship Index) initiative in 2012. This
leads to reduction in port dues if part of the ESI program

2. Packing

Industrial packing issues:

o Weight
o Breakage
o Humidity (moisture) and temperature
o Pilferage and theft
Containerization
o Idea conceived by Malcolm Mc Lean
o First containership: Ideal-X sailed in 1956
o Dry cargo containers or special purpose containers
Containerization issues
o Additional fuel costs due to weight
o Opportunity for smuggling contraband
o Transporting empty containers
o Loss at sea approximately 1680 containers per year form 2008-2013.
This number has gone up slightly according to the latest survey.
Source: World Shipping Council

World Piracy

In the first quarter of 2012, 11 ships were hijacked with approx. 212 hostage
taken in international and territorial water.
However, piracy attacks have been down since then due to:
o Better defenses and presence of armed guards
o International co-ordination and co-operation among naval and other
forces.
o Bad weather

3. Payment Procedures

Export payment terms are often a decisive factor in obtaining/placing an

order.
1. Cash-in-advance
a. This method is used when:
i. Importer is a new customer and has little or no operating
history.
ii. Importer creditworthiness is unverifiable or unsatisfactory.
iii. The political risk of importers home country is high.
iv. The product is unique (custom-ordered) or in high demand
and not available elsewhere.
v. Reselling the product to another buyer is difficult or near
impossible.
b. This method is good for seller (since secure) but not for the buyer.
c. However, insisting on this method may cause seller (or exporter) to
lose customers to competitors who are willing to offer more
favorable payment terms.
2. Open Account
a. Seller assumes ALL payment related risk
b. Seller may use open account to avoid extra cost of obtaining Letter
of Credit (L/C).

c. Backups such as insurance on receivables and/or guarantee from

buyer may exist.
d. Factoring reduces risk by involving sale of export account
receivables to a third party. (factor)
3. Consignment
a. Payment not made to seller until goods have been sold.
b. Payment risk assume by seller.
c. MMCs sell goods to subsidiaries on this basis.
d. May be used as a marketing tool since no obligation on part of
buyer.
e. Goods often sold on consignment include produce, eggs, poultry,
magazines, newspapers, garden seeds, potted plants, etc.
4. Letter of Credit (L/C)
a. An electronically generated contract between buyers bank and
seller. Thus credit of buyer is substituted with the credit of a bank
for a fee.
b. The applicant of an L/C is the importer (buyer). Hence, an L/C is
always initiated by the importer.
c. If L/C is confirmed and irrevocable (i.e. it has been accepted by both
the sellers bank and buyers bank) then buyer cannot modify or
cancel without sellers consent.
d. Buyers bank will honor the L/C as long as all documents listed in
the L/C are presented. These include, among others:
i. Air-waybill: Proof that goods were shipped.
ii. Pro-form invoice: Exporters formal quotation including
description of merchandise, price, delivery date, etc.
e. A less binding (and hence less costly) option is a documentary
draft. These are initiated by exporters (sellers). Features include:
i. Sight draft: Pay upon presentation
ii. Time draft: Pay at an agreed upon future date
iii. Unlike L/C, documentary drafts do not guarantee payment
and may not be used by an unscrupulous buyer to bargain
with seller.
Fig. 14.3, p. 349: L/C Transaction Read the 11 steps for the
process.
Fig. 14.4, p. 350: Risk/Cost Trade-Off
4. Financing

Private Sources: Include commercial banks.

o Factoring: Allows exporter to be more competitive by selling on open
account since a third party is willing to assume risk.
The credit period generally limited to 180 days.
o Forfaiting: Purchase of obligations beyond the 180-day period allowed
under factoring.
Political and transfer risk are borne by forfeiter.
Maturities range from 6 months to 5 years.
Public Sources: US Export-Import Bank (www.exim.gov)

o
o
o

Direct and intermediary loans to foreign buyers of US goods or lending

agencies.
Small business loan guarantees.
Export credit insurance to protect US exporter against financial and
political risk of a foreign buyer.
Jan 2015: Uncertainty over continued funding of the Ex-Im Bank by
Congress.
Dec 2015: Congress approves funding until Sep 2019.
Apr 2016: Airbus gets funding form the Ex-Im bank for its new
factory.

5. Insurance

Ocean carriers avoid responsibility for damage to goods in their possession.

Either exporter or importer must arrange for insurance without carrier will
not transport goods.
An insurance certificate is evidence that shipment is insured against
loss/damage.

Marine Cargo Insurance

o
o

Types: Special v. Open Cargo policy.

Risks covered include:
1. Basic-named perils such as fires and jettisons
2. Broad-named perils such as theft, pilferage, non-delivery, leakage,
etc.

6. Shipping Documents

Shippers export declaration. This is used to record export statistics by US

Department of Commerce.
Export License
o General
o Validated License: for strategic material such as nuclear technology.
Bill of Lading: Proof of Shipment of goods. It also serves as a contract
between shipper and carrier.
Insurance Certificate

7. Collection Documents

Commercial invoice (at destination port).

Consular invoice: prepared in the language of the destination country and
visaed by council.
Certificate of origin: for determining tariffs.
Inspection certificate for agriculture and livestock imports.

Export/Import Intermediaries

Freight Forwarders and/or Customhouse Brokers (FF and/or CHB)

Independent businesses that act as agents for exports/imports.

FF Export; CHB Imports.
Example: Serra International is a US based FF and CHB. Website:
www.serraint.com
US Exporter
US Customs
Foreign Customs
FF
o

FF:

CHB

Foreign Buyer

Provide advice on shipping methods.

Knowledgeable about export/import regulations.
Prepare necessary documentation.
CHB:
Help pass goods through customs.
Arrange for transportation of goods (if necessary).
Provide date for assessment of duties for statistical purposes.

Purpose of Customs

Locate and seize illegal drugs and contraband.

Collect duties and fees on imported merchandise.
Enforce trade provisions for example, quotas on limiting imports/exports.
Detect and apprehend fraudulent trade practices. For example, illegally
shipping copyright material such as music, software, etc.

US Customs and Border Protection (www.cbp.gov)

The CBP performs a wide range of services including:

o Protect borders
o Detect illegal and contraband items.
o Provide relief during natural disasters like earthquake and hurricanes.
o Provide training and development programs.